Appeals Court Upholds Ruling That Commuter Tax Is Illegal

Published: October 6, 1999

A New York State appeals court yesterday upheld a ruling that said it was illegal to impose a commuter tax on out-of-state residents who work in New York City if in-state commuters are exempt from the same tax.

The question, however, seemed far from settled. Lawyers on all sides of the controversy agree the case will almost certainly be decided in the Court of Appeals in Albany.

The state Appellate Division upheld the June decision by State Supreme Court Justice Barry Cozier, who found that the United States Constitution bars a state from imposing on those who do not live in the state a tax that its own citizens do not have to pay.

The fight over the 33-year-old tax arose after candidates in a special election for a State Senate seat that represents Rockland and Orange Counties, trying to get a partisan advantage, promised to repeal the tax for state residents who worked in New York City.

After the election, the 0.45 percent tax was dropped for New York residents, but out-of-state commuters still had to pay. Officials and residents of Connecticut and New Jersey sued.

Justice Cozier said such a tax, if levied without a substantial reason, violates the Constitution.

The Appellate Division judges agreed. They rejected the state's argument that New Yorkers are more heavily burdened than out-of-state residents by other taxes, such as higher sales and cigarette taxes.

''There is no evidence that such other taxes create a disparate burden,'' the Appellate Division said in an unsigned 5-0 opinion.

The appellate judges also said out-of-state commuters must continue to pay the tax until the issue is resolved.

If the Court of Appeals finds that the repeal bill is illegal, the out-of-state taxpayers would be entitled to refunds. That court will almost certainly have the final say, according to lawyers on all sides.